Central Control and Competition in the British Electricity Industry – There and Back Again

28 September 2015
Graham Shuttleworth

The Conservative UK government elected in 2015 is following the recent trend of intervening in electricity markets on environmental grounds, albeit within ever tighter financial constraints. Few politicians in the UK now promote the principles that liberalised the electricity industry in 1990. Instead, they (and politicians in many other EU Member States) frequently express a wish to exercise more control over national energy markets. In this article from Network (a publication of the Australian Competition and Consumer Commission for the Utility Regulators Forum), Affiliated Consultant Graham Shuttleworth examines the impact of this new approach on market design, competition, market efficiency, and its potential for creating effective environmental policies. In light of this experience, he stresses the need to protect the independence of regulatory institutions from political pressure, while allowing regulatory decisions to be challenged in the courts. He concludes that good electricity market design promotes efficient production and consumption (rather than contract market liquidity), that imposing a “competitive” outcome through regulation is no substitute for creating a competitive industry structure, and that the recent emphasis on environmental policy does not require governments to abandon or to override markets.